Extended review is taking a toll
The prolonged and seemingly endless negotiations between the government and its creditors, which have missed yet another agreement target date, Greek Easter this Sunday, are weighing heavily on Greece’s already battered economy.
On Wednesday, following confirmation there would be no extraordinary Eurogroup meeting concerning Greece on Thursday, the benchmark of the Greek bourse gave up 2.51 percent, having dropped as much as 4 percent over the course of the day.
Greek bond yields also soared, with the three-year debt yield rising from 10.1 percent on Tuesday to 11.7 percent on Wednesday, the five-year yield climbing from 9.4 to 9.7 percent while the benchmark 10-year bond yield advanced from 8.6 to 9.1 percent, serving to indicate investors’ concern.
The longer the bailout review takes, the longer the disbursement of the bailout tranche that depends on it will be delayed. The state’s cash reserves are running so low that they have entered emergency territory and the Finance Ministry has already started utilizing public sector entities’ cash surpluses to cover its requirements via short-term borrowing in a situation reminiscent of last spring. Unless the disbursement of the installment is made within May or by early June at the latest, the state’s expired debts will start to grow again.
Besides the risk of creating a new generation of state debts, the delay in the completion of the review is also preventing the repayment of existing debts the state has to third parties, such as suppliers.
Another consequence of the extended review negotiations is the prolongation of Greek banks’ negative status in drawing liquidity from the European Central Bank. Frankfurt has made it clear that in order to restore Greece’s waiver to the rule forbidding the supply of cheap liquidity to countries with junk sovereign bonds, the bailout review will have to be successfully completed first. Furthermore, Greece will remain outside the ECB’s quantitative easing (QE) bond-buying program for as long as the review continues.
